NOTE

– EMPLOYEE RETIREMENT BENEFIT PLANS

Profit Sharing Plan

– The Company has established a profit-sharing

401

(k) type salary reduction plan (Plan) for all employees that meet the necessary eligibility requirements and participants are fully vested after

six

years of service. For Company matching contributions made for plan years prior to

2014,

annual Company contributions were at the discretion of the Board of Directors. Effective

January 1, 2014,

the Company adopted a Safe Harbor matching contribution provision, whereby it agreed to match

100%

of participant’s contributions up to the

first

of salary and

50%

of the next

2%,

for a total maximum Company matching contribution of

of participant salary, as defined by the Plan. The Safe Harbor matching contribution is guaranteed.

Profit sharing plan expense was

$375,000

and

$381,000

for the years ended

December 31, 2018

and

2017,

respectively.

Employee Stock Ownership Plan

– The ESOP covers substantially all employees that meet certain age and service requirements. Under the plan, annual retirement expense is generally defined as a percentage of employee compensation, net of forfeitures from employees who have terminated employment.

October 2016,

the ESOP borrowed

$1.5

million from Bancorp

(the Company) to purchase

150,358

shares of common stock from the Company at

$10

per share. Bancorp

accepted a

$1.8

million note from the ESOP secured by all unallocated shares in the plan with a

-year repayment term. The principal balance includes

$1.5

million used to purchase stock in

2016

and

$266,000

used to pay off already outstanding ESOP loans used to purchase shares in

2012

and

2014.

Principal and interest payments on the note are made every

December 31

and the interest rate on the loan adjusts annually on

January 1

to the prime rate of interest as published in the Wall Street Journal. The Bank makes at least annual discretionary contributions to the ESOP and the ESOP uses all funds it receives to repay the loan. When loan payments are made, ESOP shares are allocated to participants based on relative compensation for that plan year. At the discretion of the employer, participants

may

receive the shares, cash, or a combination of stock and cash at the end of employment.

Since the Bank is the primary source of repayment on ESOP loans, the Bank records the note payable and an equal contra-equity account on its balance sheet and interest expense and ESOP benefit plan expense on its statement of comprehensive income equal to the annual loan payments. As inter-company borrowings, all bank-recorded balance sheet items, Bancorp

interest income and Bank

interest expense on the ESOP loan are eliminated in consolidation. Bancorp

consolidated financials include a contra-equity account with a balance equal to the purchase price of all unallocated shares in the ESOP.

Shares held by the ESOP at

December 31, 2018

and

2017

were as follows:

	At December 31,
	2018		2017

Allocated and committed to be allocated to participants		33,318		31,578
Unallocated/unearned		170,316		176,102

Total ESOP shares		203,634		207,680

Fair value of unallocated/unearned shares	$	2,452,557	$	2,597,501

ESOP expense was

$90,000

and

$84,000

for the years ended

December 31, 2018

and

2017,

respectively.

Defined Benefit Plan

– The Company contributes to a multi-employer defined benefit pension plan, the Pentegra Defined Benefit Plan for Financial Institutions (“Pentegra DB Plan”, EIN

5645888

and, Plan

No.

333

). On

June 1, 2006,

the Company froze the benefits available under the defined benefit pension plan. The risk of participating in the Pentegra DB Plan is different from single-employer plans in the following aspects:

●	Assets contributed to the Pentegra DB Plan may be used to provide benefits to employees of other participating employers.

●	If a participating employer stops contributing to the Pentegra DB Plan, the unfunded obligations may be borne by the remaining participating employers.

●	If the Company chooses to stop participating in the Pentegra DB Plan, it may be required to pay a withdrawal liability.

The Company’s cash contributions to the Pentegra DB Plan were

$82,000

and

$110,000

during the years ended

December 31, 2018

and

2017,

respectively, all of which represented less than

of the total plan contributions. As of

July 1, 2018 (

the most recent valuation report available), the unfunded pension liability was approximately

$405,000

(

91%

funded). Pension plan expense (benefit) for the years ended

December 31, 2018

and

2017

was

$44,000

and

$202,000,

respectively. There are

funding improvement or rehabilitation plans pending, and

future minimum contributions required by collective-bargaining or other contractual agreements. Under U.S. legislation regarding multi-employer pension plans, a company is required to pay an amount that represents its proportionate share of a plan’s unfunded vested benefits in the event of withdrawal (as defined by the legislation) from a plan or upon plan termination.